LONDON (Reuters) - Britain scrapped a tax on share transactions yesterday after the European Union's top court ruled it breaks EU law, leaving an already cash-strapped British treasury facing a huge refund bill from companies.

Europe's biggest bank, HSBC, argued in the European Court of Justice that when it bought French rival CCF in 2000, it had to pay a 1.5 percent British stamp duty reserve tax totalling £27 million ($43.04 million) on new shares it offered to CCF shareholders through a French clearing service.

The court said the duty contravened the EU's capital duty directive in a ruling that British firms that have been involved in a cross-border takeover will study carefully.

Britain's Revenue and Customs said it would stop levying the tax immediately but may not back down completely.

"The government's policy position remains that transactions involving UK shares should bear their fair share of tax," a Revenue and Customs spokesman said.

"In light of today's judgment, we will determine whether and how to amend the stamp duty reserve tax rules to ensure movements of shares into and within clearance services bear their fair share of tax, whilst ensuring the rules are compatible with Community law," the spokesman added.

HSBC welcomed the "favourable ruling from the European Court of Justice which clarifies the position on this issue".

The Luxembourg court said in its ruling the EU law "must be interpreted as meaning that it prohibits the levying of a duty such as that at issue in the main proceedings, on the issue of shares into a clearance service".